MEP Tomáš Zdechovský: EU needs ‘Taxparency’ solution to fight tax evasion

Tomáš Zdechovský [Zdechovsky.eu]

The LuxLeaks case reminded Europe that it needs to deal with tax evasion which costs the EU budget billions of euros. A group of lawyers and economists put forward the so-called ‘Taxparency’ solution and believe they can gather political support.  “We have already presented it to Mr. Juncker, and he liked it,” Czech MEP Tomáš Zdechovský told EURACTIV Czech Republic in an exclusive interview.

Tomáš ZdechovskýMEP (EPP, Czech Republic) is member of the Committee on Budgetary Control and of the Committee on Civil Liberties, Justice and Home Affair.

He spoke to EURACTIV Czech Republic’s Chief Editor Lucie Bednárová.

Commission President Jean-Claude Juncker has a big problem, following the ‘Luxleaks’ scandal. Some of your colleagues MEPs have called for his resignation and urged the Commission to present a solution to the current situation. What is your view on this?

In the first place, I would like to stress that it is not only about Luxembourg. The fact that we have countries that seek to raise their tax revenues and lower their budget deficits through favourable tax treatment of corporations is a pan-European problem. If you are a small or medium-sized company (SMEs), you have to pay no matter what and no one would give you a better treatment. On the other side, multinationals that are supposed to pay large amounts of money are in a position where they can negotiate individual conditions with national authorities. These practices are not legally prohibited, but on the other hand, they are not right either. It is unfair, because some member states benefit at the expense of others, and deprive them of relatively attractive revenues.

What steps can we expect from the EU institutions in relation to Luxleaks case?

At first, there will be an investigation into the Luxembourg case. President Juncker stated that he will not interfere, and that the Directorate General, that is otherwise competent in this field, will not intervene either. Next, there is a need to put forward a European solution that will work.

You came with a proposal for a so called ‘Taxparency solution’. Could you tell us more about the concept?

I am working on that proposal with a group of Czech lawyers and economists. It is based on the idea that multinational corporations would be taxed in the EU by at least 11.25 per cent on their global corporate profits. If acompany pays a statutory tax rate in each European country where it operates, everything is alright. But once it shifts its profits to some tax haven outside the EU, and by doing so, it gets its global tax ratio below 11.25 percent, then it should bear additional disclosure obligations and would be subject to the scrutiny of tax authorities.

Why did you choose an 11.25 percent rate?

It is an average of the lowest statutory corporate tax rates in two EU Member states – Bulgaria and Ireland. We consulted it with companies, trade unions, experts and economists and I have to say it received their support. Many companies admit that if they have to pay the rate of 11.25 %, it would be acceptable for them, and they would not even consider shifting profits to tax havens.

You have mentioned that this is a transparent solution. In what sense?

If a corporation would pay a global corporate tax at a minimum level of 11.25 percent, and at the same time it would reveal its global ownership structure, it would get a so called ‘taxparent mark’. This mark would send a clear message to consumers, partners and even tax authorities that the tax behaviour of this corporation is fair and transparent.

Would companies be motivated enough to pay a minimum tax and reveal their ownership structure at the same time?

It is a part of Corporate Social Responsibility that is widely shared among companies. It is about realising that you are living and doing business in a society which provides you with certain services such as judiciary, public administration, or police and you want to pay it back. You need to decide that you are going to pay taxes in that country. Companies need to understand this, otherwise it is not going to work.

As a member of the Committee on Budgets (BUDG), I can see that we give taxpayers’ money to corporations with non-transparent ownership structures. It is paradoxical that we impose economic sanctions on Russia, but on the other hand up to 10% of companies that are receiving money from the EU budget operate with Russian capital or are owned by Russians. Who are we kidding then? What is the use of our sanctions?

You assume that companies will be motivated to act responsibly and to disclose their ownership structure. What about the rest of them? Would they be penalised somehow?

We do not expect any sanctions for them. It will be up to them to decide whether they want to act responsibly or not. However, if they evaded taxation and paid less than 6 percent on their global profits they would be obliged to reveal how much they really paid. I believe this should be discouraging enough.

Do you think it will work?

Personally, I would never buy a product from company which does not pay its tax. I believe other consumers feel and would do the same. It is similar to “fair trade” mark which is very popular among consumers and is increasing companies´ sales worldwide. If consumers know that some company is responsible and fair it definitely gets their support.

How can we imagine “taxparent” mark in practice?

Taxparent corporations can use a “taxparent” mark on billboards, printed materials, or their websites.

In what stage is the Taxparency draft now?

We consulted on the draft with experts, lawyers, many organisations which are somehow connected to taxes, and we have already presented it to the President of the European Commission, Mr. Juncker. According to my information, he liked it. It is really necessary to adopt a complex solution, and I believe that we can make it.

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